Freddie Mac Conventional Fixed Rate Mortgage Loans

Freddie Mac is one of the agencies that comprise the secondary mortgage market. As such, Freddie Mac purchases both single family and multi-family residential mortgages from primary mortgage market lenders. Freddie Mac has actually been around since the 1970’s as an answer to a difficult housing situation that arose in the Sixties, when interest rates tended to be unpredictable and it became increasingly difficult for consumers to obtain affordable mortgage loans. While Freddie Mac has been around some 35 years, it has really only been in the last few years that consumers have actually become more aware of the important role that Freddie Mac can play in their lives when they make the decision to purchase a home.

Sometime after the consumer has been approved for the loan and it has been originated, the lender will sell the mortgage loan to Freddie Mac in order to free up funds to help other consumers purchase homes. Freddie Mac then packages that loan, along with others, into securities than can be sold to investors. In many cases, these investors may come from all over the world. While the whole process may sound a bit complicated, in the end it allows consumers to have continuous access to mortgage funds and lenders to be able to stay with Federal Reserve guidelines regarding the amount of money they have available for loan to consumers at any given time.

A homeowner begins the process by applying for a conventional mortgage loan from a lender or mortgage company. At the time that they make the application for the mortgage loan, the consumer will need to give some thought to what type of mortgage loan they are interested in. This goes much farther than considering the length of the loan they would prefer. Consumers may select either an adjustable or fixed interest rate loan and it is imperative that consumers full recognize the significance of each type of mortgage loan.

By and large, a fixed rate mortgage loan is chosen by more consumers than any other type of loan. It is so common; in fact, that many consumers may not realize there is any other kind of mortgage loan. While a fixed rate mortgage loan is quite popular, there are definite advantages to considering an adjustable interest rate loan. Adjustable rate mortgages, also known as ARM’s, can give the homeowner the benefit of starting off their mortgage with a low interest rate; sometimes lower than may be offered with a fixed rate mortgage loan. The lower interest rate translates to a lower monthly mortgage payment. Naturally, this is a definite advantage. The one fact about adjustable interest rate mortgages that consumers should be aware of, however; is that the low interest rate can change during the term of the loan. When and how often the interest rate changes is determined by the adjustment periods of the loan. Consumers should pay very close attention to the adjustment period of the loan and make sure they fully understand the implications. Adjustment periods of ARM’s tend to vary greatly. One adjustable rate mortgage may stipulate that the interest rate cannot change for several years while another may only restrict the change to a matter of months. Regardless of the length of the restriction period on interest rate changes, after that time period expires the loan is subject to the fluctuations of the primary interest rate market. In some cases, the interest rate on the loan may change each and every year for the remainder of the loan. The change may result in a higher interest rate or a lower interest rate. Generally, the loan will come with what is known as a lifetime cap-this means that the loan can never exceed the amount of the cap.

Consumers who are interested in an adjustable interest rate mortgage should learn how to read the numbering system commonly used on ARM documents. For example, a loan that is 5/1 means that the interest rate cannot change for the first five years but will become subject to changes each year following that initial five year period. With a lower interest rate and higher mortgage qualification period adjustable interest rate mortgages can be extremely appealing to consumers but they should also keep in mind that although their interest rate and mortgage payment may start out low, they may also end up higher by the end of the loan. Whether an initial lower interest rate is worth the risk of eventual higher payments is a decision the consumer will need to make.